Stocks End Higher on Hopes For Economic Rebound

NEW YORK – Wall Street brushed off more bad economic news Tuesday to finish with a moderate advance that left broad stock indexes at their highest levels in two months.

Stocks gained after stumbling in the early going because of mixed data on the service sector, factory orders and pending home sales. While investors expected the readings would show further deterioration, they were hoping the pace of the declines would slow. The market is eager for signs that the U.S. recession will end this year.

Stocks recovered in midafternoon trading after the Federal Reserve released the minutes from its December meeting, providing insight into the central bank's historic decision to ratchet down its key interest rate to near zero to revive the economy.

Investors hopeful for an economic recovery moved out of sectors like consumer staples and health care that are seen as safe havens during recessions and put money into consumer discretionary names and beaten down financial stocks. Technology shares advanced in part after a Barclays Capital analyst upgraded shares of telecommunications network equipment maker Ciena Corp. Proposals by President-elect Barack Obama to help stimulate economic growth by spending on infrastructure and pushing for tax breaks helped some sectors expected to benefit from a stronger consumer.

"I think people are cautiously optimistic," said Ben Halliburton, chief investment officer at Tradition Capital Management. "They are hopeful that the Obama administration is going to get the economy back on track. But I think the speed at which they get things back on track might be slower than the current consensus believes."

The Dow Jones industrial average rose 62.21, or 0.69 percent, to 9,015.10.

Advancing issues outnumbered decliners by about 4 to 1 on the New York Stock Exchange, where volume came to 1.34 billion shares.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.45 percent from 2.48 percent late Monday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.14 percent from 0.09 percent.

On Monday, the Dow fell 81 points, giving back some of its gains from last week's rally in which all the major indexes rose more than six percent. Tuesday's climb followed a recent pattern in which investors have largely shrugged off weak economic data.

Wall Street has been showing some signs of stability since hitting multiyear lows on Nov. 20. The Dow is up 19.4 percent since then, while the S&P 500 index is up 25.6 percent. But analysts are quick to note that the market is not out of the woods yet.

"We've had sort of a positive correction," said Brian Gendreau, investment strategist at ING Investment Management. "The question is, is this the beginning of a sustained bull market? I would suspect not."

The economic numbers are mostly still poor but the stock market has recovered from past recessions before the economic figures show improvement.

Analysts expect Wall Street to remain on edge in the coming weeks as corporate earnings reports begin to arrive. Investors will be looking to glean any insight into companies' expectations for the coming year.

"People are really undecided on what '09 is going to look like from an earnings perspective," said David Waddell, senior investment strategist and chief executive of Waddell & Associates. "(The market) could get a bit more pessimistic depending on how ugly the fourth quarter is. The surprise would be if things aren't as bad as we think."

Wall Street on Tuesday examined the Fed's take on whether investors can expect an economic recovery this year.

Minutes from the central bank's last meeting showed policymakers feared the economy would be stuck in a painful rut for some time. Fed Chairman Ben Bernanke and his colleagues slashed the central bank's target lending rate to help spur economic growth.

The Fed, which this week began buying mortgage-backed securities, also said at the time it was considering acquiring other types of securities, such as Treasurys.

"I think this statement clearly indicates they are going to continue to try to get rates lower and move people into riskier assets," said Peter Cardillo, chief market economist at Avalon Partners. "The minutes point out the fact that they are using every tool available."

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